School Finance Judgments and Spending on Education: A Review of the Evidence

Beginning with California's Serrano v. Priest in 1971, the constitutionality of school finance systems in U.S. states has been under attack for nearly 35 years. During this time, 37 states have had the their education funding systems challenged on constitutional grounds. In 25 of these states, the school financing system has been ruled unconstitutional in one or more court challenges. Taken together, these school finance equalization rulings (SFEs) represent perhaps the most important reform movement in American public education since the end of racial segregation in schools with Brown v. Board of Education in 1954. With Rose v. Council for Better Education in Kentucky in 1989, SFE challenges changed importantly. Prior to Rose, court challenges to school finance systems rested on equity grounds, that is the argument that equality of educational opportunity, as guaranteed in many state constitutions, requires equality of educational resources. Simply put, the equity cases challenged the inequality in spending that favored property rich districts over poor districts in many states. Rose, however, ushered in a series of recent cases challenging state funding systems on adequacy grounds. These adequacy cases are based on the argument that an adequate education, as guaranteed in many sate constitutions, requires adequate resources. According to this line of reasoning, students with greater "needs" than others may in fact require greater resources than others in order to obtain an adequate education. Although both equity and adequacy cases have usually been grounded in a demand to provide greater resources for poor students, adequacy 1 cases acknowledge that resources may be distributed unequally, to the extent that high needs students require greater resources to obtain a satisfactory level of education. With the exception of Springer, Liu, and Guthrie (2005), the existing literature on the empirical effects of SFEs has not differentiated between equity and adequacy cases. In this paper, I review the previous studies and re-estimate some their most important results allowing for differential equity and adequacy effects. In addition, I make a small methodological contribution. Because few of the prior empirical SFE studies using panel data have accounted for serial correlation when estimating standard errors, I re-estimate some of the most influential models using state-clustered standard errors, as recommended by Bertrand, Duflo, and Mullainathan (2004). The results indicate that several of the findings from prior studies are based on standard errors that were likely too small.